Super funds reverse December quarter’s losses as returns jump in 2019

Superannuation funds have taken a big step forward in 2019 with the median growth fund gaining 2.5 per cent in January and making up the losses of late last year, new figures show.

Research house Chant West said the growth fund average, where most Australian superannuation is invested, grew 4.6 per cent this year, reversing the 4.6 per cent average decline in what it described as a “disappointing” December quarter last year.

So a fund worth $150,000 in September would have fallen in value to $143,100 by the year’s end.

By the third week of February it would have been worth $149,682, having almost made up the lost ground.

Chant West describes the ‘growth’ option as being made up of between 61 per cent and 80 per cent of growth assets.

Chant West analyst Mano Mohankumar says the turnaround in super fortunes was driven by the share market.

“In January, Australian shares gained 3.9 per cent and international shares surged 7.3 per cent,” he said.

Share price rises for February push those returns up to 8.5 per cent for Australian shares and 10.5 per cent for international shares.

“The recent global share market rally has been on the back of optimism around a possible resolution of the trade dispute between the US and China. However, we caution members not to get carried away with the early results for 2019 as much of the uncertainty dominating news last year hasn’t disappeared,” Mr Mohankumar said

The share market turnaround was so influential on super returns because equities typically make up 50 per cent or more of growth fund assets. Other influences have been listed property which grew 10 per cent globally and 6 per cent in Australia over January.

Fixed-interest portfolios have also been a positive influence because falling interest rates on government bonds have pushed up the values of bonds, which have an inverse relationship to interest rates.

Fixed-interest specialist with JB Were, Laurie Conheady, said the yield on 10-year Australian government bonds were now yielding 2.1 per cent while in November the figure was 2.75 per cent.

How will things go from here?

As Mr Mohankumar warns, don’t assume the good times will last as there are lots of concerning factors at play.

David Buckland, CEO of Montgomery Investment Management, said the takeout from recent months was “interest rates will stay lower for longer”.

“That might sound good if you’ve got a mortgage, but there is a dark cloud behind the silver lining,” he said.

The cause of low rates is “synchronised global growth declines,” Mr Buckland said. Poor employment figures in the US, as well as falling growth in Europe and bad news from China’s boiler room, have cast a pall on good times.

News that Australian wages grew a minuscule 0.5 per cent in the December quarter, below expectations as housing prices slumped, means the bad news is here too.

In fact economist Gerard Minack, who picked the global financial crisis, thinks we could be headed for a “doozy of a recession”.

If that happens super returns won’t be rising.

Is fancier better?

In recent years some [mainly for-profit] funds have moved to a lifecycle model that cycles members from more aggressive to more conservative positions as they age to try to prevent nasty shocks for those approaching retirement.

The above chart demonstrates the results by classifying members by decades of birth.

It shows the older cohorts have been protected from market slumps in recent times. However the comparison with the performance with the standard MySuper growth fund shows that over most time periods the basic fund has done better.

The New Daily is owned by Industry Super Holdings

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